Acquiring Dramafever: Ott Strategies of Warner Bros

Home , Cinemax, DramaFever, Eyeworks, Great Big Story, HBO Now, Kevin Tsujihara

ACQUIRING DRAMAFEVER: OTT STRATEGIES OF WARNER BROS.

By Jennifer Moon

Prepared for Development and Production Module W54300 MA Film, Television and Screen Industries University of Nottingham Spring 2016 Semester Word Count 9212

TABLE OF CONTENTS

SUMMARY ...... 4 OVERALL KEY FINDINGS ...... 5 RECOMMENDATIONS ...... 6 TIME WARNER DIVISIONS ...... 7 WARNER BROS ...... 9 RECENT WARNER BROS. STRATEGIES ...... 20 WARNER BROS. FINDINGS ...... 21 DRAMAFEVER ...... 22 DRAMAFEVER FINDINGS ...... 28 HOME BOX OFFICE – HBO ...... 29 INDUSTRY ANALYSIS: THE ECOSYSTEM ...... 31 INDUSTRY ANALYSIS: INDUSTRY DISRUPTIONS ...... 33 INDUSTRY ANALYSIS: OTT STRATEGIES OF TIME WARNER DIVISIONS 35 FINDINGS OF INDUSTRY ANALYSIS ...... 37 REFERENCES ...... 38

3 SUMMARY

On February 23rd 2016, Variety magazine reported that Warner Brothers acquired DramaFever, the 6- year-old streaming subscription service specializing in Korean drama television shows. This was after the New York based startup had already been purchased by Japan’s SoftBank for a reported $100 million the year previously, at which time, both Barry Diller’s IAC and Warner Bros. had also been in pursuit to acquire the service1.

At first glance, this development may seem to be fairly straightforward: Warner Bros. gains control of the exclusive content that DramaFever has served its niche audience with while also acquiring the streaming technology of DramaFever. But within the business strategies of Warner Bros. lies the inseparable web of the overall strategies of Time Warner, in which this report will explore in greater depth.

In particular, this news comes at a time when Warner Bros. parent company Time Warner has been vocal in recent investors earnings calls about the focus on looking at strategies both inside outside the traditional television ecosystem which includes their latest OTT (over-the-top – referring to content delivery over the internet without a multi-system operator) strategies2. This includes Turner’s (a division of Time Warner) overall strategy to innovate beyond the traditional ecosystem, through providing viewing experiences that drive engagement across all platforms3.

The aims of this report is to analyze what the recent acquisition of DramaFever demonstrates about the current climate of Warner Bros. OTT focused strategies. The report examines layers of these strategies with specific focus on Warner Bros. and how the acquisition fits into the overall strategy of Time Warner. Warner Bros. position in the film industry will also be explored in order to contextualize the current challenges of the studio as well as examination of DramaFever’s attributes and strategies in order to analyze key insights that DF can contribute to Warner Bros.

Key questions to be answered

• What does the Warner Bros. acquisition of DramaFever say about the current trends of media conglomerates? • What factors drive Warner Bros. strategy to acquire DramaFever? • What can be attributed to the growth of DramaFever? • What is the current position of Warner Bros. in the film and television industry, and what challenges is the studio currently facing? • What challenges does Time Warner face within the rise of OTT services? • What other OTT services feed into the overall Time Warner strategy?

This report provides an overview of the current OTT landscape, through exploration of the film and television industry in the United States to better inform strategic decisions related to ownership, delivery and distribution of content. By providing an introduction to emerging trends of dealing with the rapidly changing digital landscape, this report will inform those interested in gaining a working knowledge of digital platforms and delivery methods and how current challenges manifest themselves in the case of Time Warner.

4 OVERALL KEY FINDINGS

• NEW ERA FOR MEDIA CONGLOMERATES: The acquisition of DramaFever by Warner Bros. signifies the latest trend of major studios purchasing startups that create and/or curate content and provide platforms for distribution and monetization of content.

• LIMITATIONS OF MEDIA CONGLOMERATES: The DramaFever acquisition demonstrates the abilities and achievements of new startup platforms that major studios have difficulty replicating – particularly for building new technology platforms, creation of fresh content, and rapid execution of strategies for reaching niche audiences.

• DISRUPTION OF SUPPLY CHAIN: Warner Bros. are acutely aware that new and innovative strategies must be put in place in order to stay competitive for viewership, as new technology and social platforms have disrupted the linear supply chain of previous content delivery. The new era of a non-linear digital content supply chain has proven a challenge for studios to retain control of how and when content is consumed as control has increased in the hands of the viewers.

• DISRUPTION OF CURRENCY IN THE TELEVISION ECONOMY: With the increase of digital platform viewing, ratings providers such as Nielsen and Rentrak/ComScore struggle to create a new system of ratings that accurately captures digital platforms along with traditional ratings measurements. If an adequate measurement system for all platforms can be implemented successfully, it will influence strategic decisions of how ubiquitous to make content across multi-platforms and to what degree exclusive licensing will be retained by content creators.

• TECHNOLOGY IS KEY: The rise of digital viewing for audiences requires utilization of underpinning technology that is capable of handling the traffic to adequately deliver content. Outsourcing of streaming technology is common due to media conglomerates unable to handle building the technology from scratch in a timeline that allows them to stay competitive amid the constantly changing trends of viewer behavior within the digital landscape.

• EMPHASIS ON DIVERSIFIED CONTENT: More than ever due to the myriad of choice and control of the viewer, attracting audiences with content becomes more important. Warner Bros. has made television content creation and distribution a key strategy to meet the rising competition of digital viewing platforms amid their scarcity of major box office drawing franchises on the film side.

5 RECOMMENDATIONS

• COLLABORATION NOT COMPETITION: The new non-linear system of supply chain creates endless opportunities to reach audiences. If major media conglomerates want to compete with smaller digital content creators/curators that provide new ways to distribute and monetize content, the existing platforms should work together in collaborative environments rather than strictly competitive environments as strategies based on linear supply chains cannot thrive with the constant influx of digital trends. Warner Bros. should embrace cross platform strategies in order to foster growth of viewer engagement, even if it means relinquishing some degree of control over content.

• EXPLORE NEW REVENUE STREAMS: Relinquishment of control over content will require media companies to think outside of traditional revenue streams, and Time Warner’s focus on innovating beyond the traditional television ecosystem is a necessary step. Time Warner should continue to explore new ways of distributing and monetizing content and allow the smaller arms of recently acquired digital content creators/curators and distributors to experiment.

• CROSS PROMOTIONAL OPPORTUNITIES: With a horizontal approach to spreading content, engagement strategies that include cross promotional opportunities is a must if Warner Bros. are to effectively leverage the cross platform nature of content delivery from the studio, its subsidiaries and its parent company’s other operating divisions.

• ALLOW ORGANIC DEVELOPMENT OF RECENTLY ACQUIRED STARTUPS: DramaFever demonstrates that smaller startups have distinct opportunities for building new technology platforms, creation of fresh content, and rapid execution of strategies for reaching niche audiences. Warner Bros. should leverage the very abilities that initially attracted them to acquiring streaming sites like DramaFever by fostering continued organic development – best achieved by allowing autonomy in their operations and refrain from exercising the majority of control over strategy and development. Doing so will foster a culture of experimentation, creativity and innovation that smaller startups are better suited to handle than the major arms of Time Warner due to their smaller size and ability to execute changes faster.

• SUPPORT DEVELOPMENT OF INDUSTRY STANDARD DIGITAL RATINGS: In turn, an area that Warner Bros. should retain some degree of control over the industry is the currency of the television economy which will continue to create better leverage within 3rd party OTT providers. Maintenance of this currency can be achieved if an effective industry standard ratings system can be developed to include digital platforms. Warner Bros. and other media conglomerates should continue support the development of a new inclusive ratings systems by continuing to work with Nielsen and/or Rentrak/ComScore to implement new ratings systems across their digital channels (TV Everywhere, HBO Now, etc).

• CONTINUE TO DIVERSIFY IN THE FACE OF FRANCHISE DEPENDENCY: Warner Bros. should continue to take a diversified approach of content strategy in order to pursue a long term view and offset disappointing box office years on the film side of the studio. Doing so will help minimize loss and allow risks to be taken as experimentation for the studio is necessary while developing new franchises.

TIME WARNER DIVISIONS

The following is an overview of the organization structure of Time Warner’s operational divisions in order to provide an understanding of the greater context of the recent strategies of each division.

WARNER BROS. ENTERTAINMENT DIVISIONS

Motion Pictures Warner Bros. Pictures (formed April 4 1923) Warner Bros. Pictures International Warner Bros. Pictures Domestic Distribution New Line Cinema (Formed 1967; acquired by WB March 2008)

Home Entertainment Warner Bros. Home Entertainment (formed October 25 2005) Warner Home Video (formed 1980) Warner Bros. Interactive Entertainment (formed January 2004) Warner Bros. Technical Operations (formed 1992) Warner Bros. Anti-Piracy Operations (formed March 2004) Warner Bros. Technology Solutions (formed 2015)

Television Warner Bros. Television Group (formed September 8 2005) Warner Bros. Television WBTV (formed 1955) Telepictures Productions (formed 1990) Warner Horizon Television WHTV (formed April 2006) Warner Bros. Animation (formed 1930) Warner Bros. Domestic Television Distribution (formed 1989) International Television Distribution (formed 1989) Warner Bros. International Television Production WBITVP (formed 2009) Blue Ribbon Content (formed 2014) The CW Television Network (formed January 24 2006) - joint venture between WBE and CBS Corp

Warner Bros. Consumer Products (formed 1984) DC Entertainment (acquired 2009, DC Comics founded 1934) - DC Comics, Vertigo, MAD Superman, Batman, Green Lantern, Wonder Woman and The Flash Studio Facilities Warner Bros. Theater Ventures (formed May 2003)

[SOURCE: WARNER BROS ONLINE] 7

TURNER DIVISIONS

CNN HLN TNT TBS Cartoon Network Turner Classic Movies Adult Swim truTV Boomerang Turner Sports iStreamPlanet eSports Bleacherreport.com NBA.com NCAA.com PGA.com

[SOURCE: TIME WARNER COMPANY PAGE ONLINE]

HBO – HOME BOX OFFICE DIVISIONS

HBO HBO NOW HBO On Demand HBO2 HBO Signature HBO Family HBO Comedy HBO Zone HBO Latina

CINEMAX Cinemax MAX GO Cinemax On Demand More Max Action Max 5 Star Max Max Latino Outer Max Movie Max

[SOURCE: TIME WARNER COMPANY PAGE ONLINE] 8

WARNER BROS

For the past fifteen consecutive years, Warner Bros. Pictures has crossed the $1 billion dollar mark for the both the domestic and international division, with 2015 being the ninth consecutive year the studio crossed the $3 billion mark at the global box office4. Over the past decade, the studio’s command of the box office total market share has consistently been in the top 3, hovering between 14.4% (in 2014) to 19.7% (in 2009). But 2015 saw a dip at 13.9% - the lowest market share since 2006’s 11.6%5.

2015 was a rough year for Warner Bros. with a falling status as one of the top distributors at the box office and a string of box office flops, including the Wachowski siblings Jupiter Ascending losing more than an estimated $100, Guy Ritchie’s The Man From U.N.C.L.E. losing an estimated $50 million, and Pan losing an estimated $100 million6. Though 2015’s slate also included the successful San Andreas and Mad Max: Fury Road, they were the only 2 of WB’s 21 film slate that brought in over $100 million domestically7.

Though Warner Bros. CEO Kevin Tsujihara and Time Warner CEO Jeff Bewkes are reportedly unconcerned about the short-term results and prefer to take the big picture view of a longer trend line, there is no denying that Warner Bros. is going through some high stakes pressure in this short- term (6). With Kevin Tsujihara’s mere 2.5 years in his role as CEO, the 1000 person layoffs of the studio’s 8000-person global workforce in 20148, and a scarcity of mega franchises that Warner Bros. has previously enjoyed, Tsujihara’s leadership continues to take shape - only time will be able to tell if the CEO’s strategies can lead Warner Bros. back on top on the film side.

Within focus on expanding the DC Comics franchise, Warner Bros. has spent the past 2 years also focusing on digital strategies and creation of content on the television side, perhaps made more seamless due to the leadership of the TV division. Warner Bros. TV operations include Craig Hunegs WBTV Group president of business and strategy, Peter Roth WBTV Group president and chief content officer, and Jeffrey Schlesinger WB Worldwide Television Distribution – all of whom worked together under former TV group leader Bruce Rosenblum, which has reportedly made the transition into the new era under Tsujihara smoother (6).

9 STUDIO MARKET SHARE

January 1 – May 1 2016 Overall Gross: $3.607 billion Market Total Movies 2016 Rank Distributor Share Gross* Tracked Movies**

1 Buena Vista 25.0% $903.3 6 3

2 20th Century Fox 21.3% $769.0 11 5

3 Warner Bros. 12.7% $457.0 17 5

4 Paramount 8.7% $314.7 8 5

5 Universal 8.5% $307.8 8 5

6 Lionsgate 5.8% $207.8 12 9

7 Sony / Columbia 4.8% $174.7 11 6

8 Focus Features 3.5% $125.6 7 5

9 Weinstein Company 1.4% $52.2 7 3

10 Open Road Films 1.4% $51.8 4 3

January 1 – December 31 2015 Overall Gross: $11.495 billion Market Total Movies 2015 Rank Distributor Share Gross* Tracked Movies**

1 Universal 21.3% $2,444.9 23 21

2 Buena Vista 19.8% $2,280.2 15 11

3 Warner Bros. 13.9% $1,603.1 38 26

4 20th Century Fox 11.3% $1,302.9 24 17

5 Sony / Columbia 8.4% $966.3 20 16

6 Paramount 5.9% $674.7 16 12

7 Lionsgate 5.9% $673.8 27 25

8 New Line 2.9% $337.4 6 4

9 Weinstein Company 2.6% $301.5 14 11

10 Fox Searchlight 1.0% $119.3 11 8

January 1 – December 31 2014 Overall Gross: $10.842 billion Market Total Movies 2014 Rank Distributor Share Gross* Tracked Movies**

1 20th Century Fox 16.5% $1,790.5 22 17

2 Buena Vista 14.9% $1,617.5 17 13

3 Warner Bros. 14.4% $1,562.4 31 22

4 Sony / Columbia 11.6% $1,261.5 22 19

5 Universal 10.3% $1,115.3 18 14

6 Paramount 9.7% $1,052.9 18 14

7 Lionsgate 6.8% $736.9 22 18

8 New Line 4.4% $480.7 6 5

9 Weinstein Company 2.0% $222.0 19 15

10 Relativity 1.7% $186.5 12 8

January 1 – December 31 2013 Overall Gross: $11.513 billion Market Total Movies 2013 Rank Distributor Share Gross* Tracked Movies**

1 Warner Bros. 16.2% $1,863.3 34 25

2 Buena Vista 14.9% $1,711.0 17 10

3 Universal 12.4% $1,433.3 19 16

4 Sony / Columbia 9.9% $1,144.6 20 15

5 Lionsgate 9.3% $1,069.5 26 21

6 20th Century Fox 9.2% $1,064.2 19 14

7 Paramount 8.4% $966.9 16 10

8 New Line 5.1% $586.3 5 4

9 Weinstein Company 4.3% $491.7 21 16

10 Relativity 2.1% $241.5 9 9

January 1 – December 31 2012 Overall Gross: $11.155 billion Market Total Movies 2012 Rank Distributor Share Gross* Tracked Movies**

1 Sony / Columbia 16.1% $1,792.2 25 19

2 Warner Bros. 14.9% $1,665.4 36 24

3 Buena Vista 13.9% $1,551.4 18 13

4 Universal 11.9% $1,323.9 17 16

5 Lionsgate 11.1% $1,239.1 22 22

6 20th Century Fox 9.2% $1,025.4 19 15

7 Paramount 8.2% $914.4 21 14

8 New Line 3.0% $332.4 2 2

9 Weinstein Company 2.3% $258.2 18 15

10 Relativity 1.8% $202.4 6 5

January 1 – December 31 2011 Overall Gross: $10.174 billion

Market Total Movies 2011 Rank Distributor Share Gross* Tracked Movies**

1 Paramount 19.2% $1,957.1 21 15

2 Warner Bros. 17.9% $1,826.2 38 26

3 Sony / Columbia 12.5% $1,273.7 28 23

4 Buena Vista 12.2% $1,240.7 17 14

5 Universal 10.2% $1,040.6 17 15

6 20th Century Fox 9.6% $977.9 19 15

7 Summit Entertainment 4.0% $411.6 10 8

8 Weinstein Company 2.9% $296.1 17 15

9 Relativity 2.2% $228.1 8 7

10 Lionsgate 1.8% $184.0 15 12

12 January 1 – December 31 2010 Overall Gross: $10.678 billion Market Total Movies 2010 Rank Distributor Share Gross* Tracked Movies**

1 Warner Bros. 18.0% $1,923.9 36 27

2 Paramount 16.1% $1,713.8 18 14

3 20th Century Fox 13.9% $1,482.2 20 17

4 Buena Vista 13.6% $1,456.4 17 14

5 Sony / Columbia 12.0% $1,282.9 23 18

6 Universal 8.3% $882.0 18 15

7 Summit Entertainment 4.9% $523.2 11 8

8 Lionsgate 4.8% $516.1 16 14

9 Fox Searchlight 1.4% $152.6 10 8

10 New Line 1.0% $110.5 1 1

January 1 – December 31 2009 Overall Gross: $10.668 billion

2009 Market Total Movies Rank Distributor Movies* Share Gross* Tracked *

1 Warner Bros. 19.7% $2,105.7 37 28

2 Paramount 13.8% $1,476.1 16 13

3 Sony / Columbia 13.6% $1,456.2 24 21

4 20th Century Fox 13.1% $1,394.5 21 16

5 Buena Vista 11.5% $1,228.8 24 18

6 Universal 8.3% $890.3 21 17

7 Summit Entertainment 4.5% $482.5 11 9

8 Lionsgate 3.8% $406.0 14 12

9 Fox Searchlight 2.4% $257.1 12 9

10 Weinstein Company 1.9% $205.3 10 8

13 January 1 – December 31 2008 Overall Gross: $9.631 billion

2008 Market Total Movies Rank Distributor Movies* Share Gross* Tracked *

1 Warner Bros. 18.4% $1,767.3 30 20

2 Paramount 16.4% $1,577.0 17 14

3 Sony / Columbia 13.2% $1,267.2 23 20

4 Universal 11.0% $1,054.6 20 18

5 20th Century Fox 10.5% $1,014.3 24 20

6 Buena Vista 10.5% $1,011.7 18 13

7 Lionsgate 4.5% $436.8 19 19

8 Summit Entertainment 2.4% $226.5 5 5

9 Fox Searchlight 2.2% $214.8 9 6

10 MGM/UA 1.7% $160.8 18 12

January 1 – December 31 2007 Overall Gross: $9.664 billion

Market Total Movies 2007 Rank Distributor Share Gross* Tracked Movies**

1 Paramount 15.5% $1,499.3 20 16

2 Warner Bros. 14.7% $1,417.4 34 24

3 Buena Vista 14.0% $1,350.2 21 13

4 Sony / Columbia 12.9% $1,245.6 31 25

5 Universal 11.4% $1,101.9 20 18

6 20th Century Fox 10.5% $1,017.7 24 16

7 New Line 5.0% $487.5 17 13

8 Lionsgate 3.8% $368.1 17 17

9 MGM/UA 3.8% $366.2 29 19

10 Fox Searchlight 1.4% $132.8 15 10

14 January 1 – December 31 2006 Overall Gross: $9.210 billion

Market Total Movies 2006 Rank Distributor Share Gross* Tracked Movies**

1 Sony / Columbia 18.6% $1,710.9 34 27

2 Buena Vista 16.2% $1,492.6 25 19

3 20th Century Fox 15.2% $1,398.4 28 24

4 Warner Bros. 11.6% $1,065.8 27 21

5 Paramount 10.3% $947.3 19 16

6 Universal 8.9% $815.2 21 17

7 Lionsgate 3.6% $331.4 19 17

8 New Line 2.7% $251.5 13 10

9 Weinstein Company 2.5% $226.5 15 9

10 MGM/UA 1.8% $166.8 13 16

January 1 – December 31 2005 Overall Gross: $8.842 billion

Market Total Movies 2005 Rank Distributor Share Gross* Tracked Movies**

1 Warner Bros. 15.6% $1,377.1 25 19

2 20th Century Fox 15.3% $1,353.9 21 18

3 Universal 11.4% $1,010.2 24 19

4 Buena Vista 10.4% $921.5 23 17

5 Sony / Columbia 10.4% $917.8 27 24

6 Paramount 9.4% $832.2 17 12

7 DreamWorks SKG 5.7% $501.8 10 9

8 New Line 4.8% $420.5 13 10

9 Lionsgate 3.2% $284.0 20 18

10 Dimension Films 2.1% $185.1 7 6

[SOURCE: BOX OFFICE MOJO]

15 WARNER BROS. TOP 50 GROSSING FILMS OF ALL TIME (DOMESTIC BOX OFFICE)

Total

Rank Movie Title (click to view) Studio Opening / Theaters Open Gross / Theaters

1 The Dark Knight WB $533,345,358 4,366 $158,411,483 4,366 7/18/08

2 The Dark Knight Rises WB $448,139,099 4,404 $160,887,295 4,404 7/20/12

Harry Potter and the Deathly Hallows

3 WB $381,011,219 4,375 $169,189,427 4,375 7/15/11

Part 2

4 American Sniper WB $350,126,372 3,885 $633,456 4 12/25/14

Batman v Superman: Dawn of

5 WB $326,495,133 4,256 $166,007,347 4,242 3/25/16

Justice

Harry Potter and the Sorcerer's

6 WB $317,575,550 3,672 $90,294,621 3,672 11/16/01

Stone

7 The Hobbit: An Unexpected Journey $303,003,568 4,100 $84,617,303 4,045 12/14/12 (NL)

Harry Potter and the Half-Blood

8 WB $301,959,197 4,455 $77,835,727 4,325 7/15/09

Prince

Harry Potter and the Deathly Hallows

9 WB $295,983,305 4,125 $125,017,372 4,125 11/19/10

Part 1

10 Inception WB $292,576,195 3,792 $62,785,337 3,792 7/16/10

Harry Potter and the Order of the

11 WB $292,004,738 4,285 $77,108,414 4,285 7/11/07

Phoenix

12 Man of Steel WB $291,045,518 4,207 $116,619,362 4,207 6/14/13

13 Harry Potter and the Goblet of Fire WB $290,013,036 3,858 $102,685,961 3,858 11/18/05

14 The Matrix Reloaded WB $281,576,461 3,603 $91,774,413 3,603 5/15/03

15 The Hangover WB $277,322,503 3,545 $44,979,319 3,269 6/5/09

16 Gravity WB $274,092,705 3,820 $55,785,112 3,575 10/4/13

Harry Potter and the Chamber of

17 WB $261,988,482 3,682 $88,357,488 3,682 11/15/02

Secrets

18 The Hobbit: The Desolation of Smaug $258,366,855 3,928 $73,645,197 3,903 12/13/13 (NL)

19 The LEGO Movie WB $257,760,692 3,890 $69,050,279 3,775 2/7/14

20 I Am Legend WB $256,393,010 3,648 $77,211,321 3,606 12/14/07

21 The Blind Side WB $255,959,475 3,407 $34,119,372 3,110 11/20/09

The Hobbit: The Battle of the Five WB

22 $255,119,788 3,875 $54,724,334 3,875 12/17/14

Armies (NL)

23 The Hangover Part II WB $254,464,305 3,675 $85,946,294 3,615 5/26/11

24 Batman WB $251,188,924 2,201 $40,489,746 2,194 6/23/89

Harry Potter and the Prisoner of

25 WB $249,541,069 3,855 $93,687,367 3,855 6/4/04

Azkaban

16 26 Twister WB $241,721,524 2,808 $41,059,405 2,414 5/10/96

27 300 WB $210,614,939 3,280 $70,885,301 3,103 3/9/07

28 Sherlock Holmes WB $209,028,679 3,626 $62,304,277 3,626 12/25/09

29 Charlie and the Chocolate Factory WB $206,459,076 3,790 $56,178,450 3,770 7/15/05

30 Batman Begins WB $205,343,774 3,858 $48,745,440 3,858 6/15/05

31 Godzilla (2014) WB $200,676,069 3,952 $93,188,384 3,952 5/16/14

32 Superman Returns WB $200,081,192 4,065 $52,535,096 4,065 6/28/06

33 Happy Feet WB $198,000,317 3,804 $41,533,432 3,804 11/17/06

34 The Exorcist WB $193,000,000 N/A N/A N/A 12/26/73

Sherlock Holmes: A Game of

35 WB $186,848,418 3,703 $39,637,079 3,703 12/16/11

Shadows

36 Batman Forever WB $184,031,112 2,893 $52,784,433 2,842 6/16/95

37 The Fugitive WB $183,875,760 2,425 $23,758,855 2,340 8/6/93

38 Ocean's Eleven WB $183,417,150 3,075 $38,107,822 3,075 12/7/01

39 The Perfect Storm WB $182,618,434 3,407 $41,325,042 3,407 6/30/00

40 The Matrix WB $171,479,930 2,903 $27,788,331 2,849 3/31/99

41 Robin Hood: Prince of Thieves WB $165,493,908 2,369 $25,625,602 2,369 6/14/91

42 Clash of the Titans (2010) WB $163,214,888 3,802 $61,235,105 3,777 4/2/10

43 Batman Returns WB $162,831,698 2,644 $45,687,711 2,644 6/19/92

44 The Polar Express WB $162,775,358 3,650 $23,323,463 3,650 11/10/04

45 San Andreas WB $155,190,832 3,812 $54,588,173 3,777 5/29/15

46 Mad Max: Fury Road WB $153,636,354 3,722 $45,428,128 3,702 5/15/15

47 Scooby-Doo WB $153,294,164 3,447 $54,155,312 3,447 6/14/02

48 Sex and the City $152,647,258 3,325 $57,038,404 3,285 5/30/08 (NL)

49 We're the Millers $150,394,119 3,445 $26,419,396 3,260 8/7/13 (NL)

50 Terminator 3: Rise of the Machines WB $150,371,112 3,504 $44,041,440 3,504 7/2/03 [SOURCE: BOX OFFICE MOJO] Note: Total Gross figures are for domestic box office

Demonstrated within these results is the box office power of the franchise as 34 of the 50 films listed here are film/television franchises and/or films with sequels. The franchises within the upcoming 2016 slate of films features characters from the DC franchise and one film from the continuing Harry Potter franchise, Fantastic Beasts and Where to Find Them, of which Tsujihara was personally responsible for persuading Harry Potter author J.K. Rowling to create further spinoffs with two sequels expected to follow (6). Though DC Comics characters are a major franchise, the new iterations have yet to prove to what degree it can be relied upon as a studio tentpole (films that support overall financial performance). 17 WARNER BROS. FUTURE RELEASES

Movie Title (click to view) Studio Release Date

The Nice Guys Warner Bros. 5/20/16

Me Before You Warner Bros. 6/3/16

The Conjuring 2 Warner Bros. 6/10/16

Central Intelligence Warner Bros. 6/17/16

The Legend of Tarzan Warner Bros. 7/1/16

Lights Out Warner Bros. 7/22/16

Suicide Squad Warner Bros. 8/5/16

War Dogs Warner Bros. 8/19/16

Sully Warner Bros. 9/9/16

Untitled New Line Horror Film (Sept. 2016) Warner Bros. 9/9/16

Storks Warner Bros. 9/23/16

The Accountant Warner Bros. 10/14/16

Bastards (2016) Warner Bros. 11/4/16

Fantastic Beasts and Where To Find Them Warner Bros. 11/18/16

Collateral Beauty Warner Bros. (New Line) 12/16/16

Chicken Soup for the Soul Warner Bros. 2017

Geostorm Warner Bros. 1/13/17

The LEGO Batman Movie Warner Bros. 2/10/17

Fist Fight Warner Bros. 2/17/17

Kong: Skull Island Warner Bros. 3/10/17

Knights of the Roundtable: King Arthur Warner Bros. 3/24/17

Going in Style (2017) Warner Bros. 4/7/17

Annabelle 2 Warner Bros. (New Line) 5/19/17

Wonder Woman Warner Bros. 6/2/17

The House Warner Bros. 6/30/17

Dunkirk Warner Bros. 7/21/17

CHiPs Warner Bros. 8/11/17

Untitled WB Event Film (2017) Warner Bros. 8/11/17

It Warner Bros. 9/8/17

Ninjago Warner Bros. 9/22/17

18 Untitled Blade Runner Sequel Warner Bros. 10/6/17

Untitled WB Event Film #2 (2017) Warner Bros. 10/6/17

Live By Night Warner Bros. 10/20/17

The Justice League Part One Warner Bros. 11/17/17

Untitled PG-13 Comedy Warner Bros. 12/22/17

Untitled Warner Animation Group Project

Warner Bros. 2/9/18

(2018)

Untitled WB Event Film (2018) Warner Bros. 3/2/18

The Flash Warner Bros. 3/16/18

Ready Player One Warner Bros. 3/30/18

Untitled New Line Tentpole (2018) Warner Bros. (New Line) 4/20/18

The LEGO Movie Sequel Warner Bros. 5/18/18

Godzilla 2 Warner Bros. 6/8/18

Aquaman Warner Bros. 7/27/18

S.C.O.O.B. Warner Bros. 9/21/18

Untitled DC Film (2018) Warner Bros. 10/5/18

Jungle Book Warner Bros. 10/19/18

Fantastic Beasts and Where to Find Them 2 Warner Bros. 11/16/18

Shazam! Warner Bros. 4/5/19

The Billion Brick Race Warner Bros. 5/24/19

Justice League Part Two Warner Bros. 6/14/19

Untitled DC Film (2019) Warner Bros. 11/1/19

Godzilla vs. Kong Warner Bros. 2020

Cyborg (2020) Warner Bros. 4/3/20

Green Lantern Corps Warner Bros. 6/19/20

Fantastic Beasts and Where to Find Them 3 Warner Bros. 11/20/20

[SOURCE: BOX OFFICE MOJO AS OF MAY 7 2016]

Notable franchises on Warner Bros. upcoming slate consists of DC Comics (Suicide Squad, Justice League, Wonder Woman etc.), the Harry Potter off-shoot Fantastic Beats and Where to Find Them, and the Lego movies. While this includes multi-picture franchises, the scope of these franchises and new iterations of the DC Comics universe are less than the Hobbit, Harry Potter films and the Batman Begins franchise in terms of certainty of box office draw.

19 RECENT WARNER BROS. STRATEGIES

TV DIVISION: An aggressive strategy for diversification and growth. New directions include international, unscripted and scripted series for content-hungry cable and digital outlets (6).

EXPANSION OF PORTFOLIO OF INTERNATIONAL CHANNELS: Warner Bros. $273 million 2014 acquisition of Scandinavian production house Eyeworks provides production capabilities in key European territories. Coincides with Turner Broadcasting’s drive to expand portfolio of international channels.

INCREASE OF SCRIPTED SERIES: Under Tsujihara’s leadership, WB plans on doubling its production of scripted series for basic, premium and subscription video-on-demand channels by the year 2018 (6).

DC ENTERTAINMENT: Crucial opportunity to compete with Marvel. Tsujihara said that DC lagged billions of dollars behind Marvel in consumer products. If Warner Bros. could generate even half of that sum, it could add an estimated $150 million to Time Warner’s profits (6).

INCREASED INTERACTION WITH OTHER DIVISIONS: Under Tsujihara, there has been much more interaction with other Time Warner divisions HBO and Turner Broadcasting (6).

OTT VIDEO TO ASIA: 2015 Singel, Sony Pictures Television and Warner Bros. Entertainment Establish Start-Up to offer OTT Video to Asia9.

EMBRACE OF OTT: At the Next TV Summit in L.A. in 2015, WBTV president of business and strategy Craigs Hunegs praised OTT providers for the changes accelerated that would contribute to a thriving television industry, stating “I believe they are the best thing that has happened to TV. . . and helped TV understand what TV needs to be, especially for a younger audience.”10

OPPOSITION TO SCREENING ROOM: Despite the embrace of OTT services and new digital platforms, Tsujihara made headlines in April 2016 with comments made during Warner’s presentation at CinemaCon (convention for the theater industry). While not naming names, Tsujihara assured exhibitors that Warner Bros. has no intention of allowing a third party or middle man to come between the relationship between the studio and theaters11. The assurance of exploring emerging technologies together puts Warner Bros’ on the side of theaters who would be threatened by such a platform, and speaks of the opposition that the studio has to the type of disruption that may be caused by Screening Room, Sean Parker’s (of Napster, Facebook and Spotify) concept for a proprietary system to release films in private homes at the same time they are released in theaters.12

SHORT FORM CONTENT: October 2014 Warner Bros. announced the launch of a new short-form digital division called Blue Ribbon Content, for development and production of live-action and animated series for digital platforms. This includes spinoff content from the DC Comics franchise and the Mortal Kombat series13

INVESTMENT IN MACHINIMA: In addition to launching Blue Ribbon Content, Warner Bros. invested a reported $24 million in digital content company Machinima14.

ACQUISITION OF DRAMAFEVER: Plans to move quickly with distribution and creative teams to create and build more OTT services while rapidly enhancing and growing and the DramaFever channel, according to Craig Hunegs15. WARNER BROS. FINDINGS

• DEPENDENCY ON FRANCHISES/INCREASE ON TELEVISION: Warner Bros. market share at the box office is built on the major franchises such as Harry Potter, The Hobbit and the DC Comics franchises. 2016 will see an installment of the Lego franchise and the much anticipated Harry Potter offshoot film, while Warner Bros. pursues aggressive strategies to increase television content output at the same time. The studio continues to develop the DC Comics franchise future which may or may not prove to be successful as it is a new iteration of the franchise.

• 2015 PROFITBILITY MATTER OF PERSPECTIVE: While Warner Bros. made headlines for the series of flops in 2015, the studio still ended the year with $3.5 billion of worldwide box office16. If the measure of the studio’s prestige by market share percentage year over year is considered as the main indicator of success, Warner Bros. clearly experienced a disappointing year given the previous decade’s market shares of consistently remaining in the top 3. But under different perspectives of measurement in the long term and big picture view, lack of established franchise tentpoles may ultimately not prove as massively detrimental to the studio’s overall profitability as Warner Bros. still takes an approach to a diversified film production slate in 2016 as well as their focus on television and new content. In addition, though the recent Batman vs Superman: Dawn of Justice has been critically panned with a Rotten Tomatoes score of 27%17 and estimated budget of $250 million18, thus far its $865 million draw at the box office19 demonstrates the need for defining success when evaluating the studio’s overall position in the industry.

• MULTIFACETED OTT STRATEGIES: The collection of OTT focused strategies of the studio provides a variety of options to tackle the supply chain challenge which equips Warner Bros. for a OTT focused future.

• INCREASE OF SOLUTIONS AND OPTIONS ACROSS THE BOARD: New content creators, social platforms to distribute and monetize content, and easy access to technology for streaming such as that within the acquisition of DramaFever demonstrates focus on a horizontal approach to setting up the studio for the future. The increased interaction between Warner Bros., HBO and Turner also will allow for an increase of solutions available to tackle challenges, such as HBO Now’s (HBO’s new streaming service) streaming outages due to website traffic during Game of Thrones season 6 premiere20

• FOCUS ON CONTENT: Warner Bros. formation of Blue Ribbon Content, investments in content creators such as Machinima and aggressive growth strategy of television display Warner Bros. belief in diversifying content for multiple platforms including traditional TV networks as well as new digital platforms.

• LIMITATION ON EMBRACE OF STREAMING: Warner Bros. has a limitation of what degree streaming will be embraced, as Tsujihara’s statement made at CinemaCon, siding with theater exhibitors rather than allow a platform like Screening Room to challenge their relationship.

DRAMAFEVER

AT A GLANCE

• Launched in 2009 by Seung Bak and Suk Park in New York

• CEO: Seung Bak - Prior to DramaFever, Bak was Vice President and Chief Marketing Officer for Capital IQ, leading provider of information services to the global financial company

• President: Suk Park - Prior to DramaFever, Suk was Managing Director of the International Division at Ziff Davis, where he was responsible for creating joint ventures and licensing partnerships throughout Asia and Europe. Prior to Ziff Davis, Suk was Director of International Business Development at Citadon, a provider of collaborative workflow software

• Began with one Korean Drama Series

• Content includes Korean Dramas, Latino, Taiwanese, Japanese, Chinese and now British Dramas

• Paid monthly subscription - 1.49/mo premium billed annual, monthly 2.99

• DramaFever has a 700 title library with about 15,000 episodes

• Syndicates a portion of its library via Hulu, Netflix, Amazon and iTunes

• 21 million unique monthly visitors

• 70+ content partners

• 800 million minutes a month streamed

• 14,000+ episodes in library

• Partner programs; pay-per-click partner, and premium sales partner (for large tier publishers with right type of traffic, earn commission for every sale of Dramafever premium

22 • Partners include Artear, CCTV, imagina, Korean Broadcasting System (KBS), Munhwa Broadcasting Corporation (MBC), RTVE, SET, Seoul Broacasting System (SBS), SMG, telefe

• Investors include AMC Networks, Bertelsmann, MK capital, Nala Investments, Steven Chen (YouTube), Allen DeBevoise (Machinima/DanceOn), Matt Coffin (Owermybills.com), Jeff Fluhr (StubHub)

• Audience: Mostly women, ages 18-24, 40% White, 30% Latino, 15% Black, 15% Asian (Dramafever Infographic Online)

• Viewers jumped 440% in 1 year (Heine 2014)

• Co-produced Heirs, starring Lee Min Ho

• Began to include BBC Dramas such as Prime and Prejudice to Lineup21

• DramaFever has a focus on social networking cross promotion and actively uses YouTube to drive engagement from fans

[SOURCES: EXCEPT WHERE NOTED, ALL DATA FROM DRAMAFEVER ONLINE]

23 24 DRAMAFEVER YOUTUBE STATISTICS

DramaFever consistently grows subscriber base on YouTube, which feed into it’s overall successful social cross platform strategy.

[SOURCE: SOCIAL BLADE ONLINE 2016]

26 DRAMAFEVER TIMELINE

January DramaFever Launches Beta version by Seung Bak and Suk Park in New York22 2009

August Fully operational website launches (ibid) 2009

May 2010 DramaFever partners with Hulu, offering a show page curated by DramaFever on Hulu23

March Raises $1.49 million in venture capital24 2011

March Secures $4.5 million in Series B funding led by MK Capital by investors Steve Chen 2012 (YouTube co-founder), Benjamin Ling (product manager at Google), Stubhub founder Jeff Fluhr, GraphEffect president Stephano Kim, Wikets CEO Andy Park, and Capital IQ co-founders Randy Winn and Steve Turner25

June 2012 Raises another $1.5million with backing from AMC Networks, NALA Investments, Bertelsmann Digital Media, and others26

June 2012 Sandy Grushow, former chair of Fox Television Entertainment Group, signs on as strategic advisor in conjunction with latest funding (ibid)

May 2013 DramaFever Recognized as Industry Leader by South Korean Government during the Leaders’ Meeting for Creative Economy held in Los Angeles27

August Raises $4 million in debt financing from SoftBank Ventures Korea (19) 2013

December Signs deal with NBCU’s Telemundo for streaming Spanish language content on 2013 DramaFever28

May 2014 Viewership increases by 440% in 1 year29

August Signs licensing deals with Korean Film Distributors Showbox and Lotte30 2014

October Japan’s SoftBank purchases DramaFever for undisclosed amount, speculated to be 2014 between $80 million and $140 million31

June 2015 AMC Beta-Tests Streaming Service for horror fans, Shudder, powered by DramaFever32

July 2015 SoftBank looks to sell DramaFever33

July 2015 DramaFever cuts deal with CJ E&M for 350 plus hours of Korean Shows and Films for distribution rights in US and Canada, along with rights to redistribute through Hulu and iTunes34

February Warner Bros acquires DramaFever from SoftBank35 2016 27 DRAMAFEVER FINDINGS

• SUCCESSFUL IDENTIFICATION: Identification of an emerging market and the founder’s connection to Korean culture enabled creation of a successful service.

• EXCLUSIVE CONTENT: Focus on acquiring exclusive content from major networks in Korea created the only legal streaming platform from which to view Korean dramas in the U.S.

• BUILT ON FAN DEMAND: Identification of the emerging market involved taking notice of a niche community of fans of Asian dramas who worked together to create subtitles and forums with illegal downloadable content. DramaFever met a niche in being able to provide legal, and therefore, consistent and quality subtitling (a necessary feature for DramaFever’s primary audience) along with complete seasons of episodes to allow for binge watching36.

• TECHNOLOGY AS KEY LEVERAGE: Having built their own streaming technology from the ground up was the key to DramaFever’s leverage as a commodity in attracting prospective buyers, resulting ultimately in their reported $100 million purchase by SoftBank and later by Warner Bros. for an undisclosed amount.

• UNIQUE CONTENT: DramaFever’s belief in the power of the content even in a cross-cultural setting with a language barrier proved to be correct. Fans of Korean dramas, despite not being Korean, are attracted to the storylines and humor that Korean content provides which American content does not37. The success of DramaFever showcases major possibilities for a diversified approach to creating and/or curating content outside of traditional markets.

• DIVERSIFIED CONTENT STRATEGY: Because of this approach to focusing on a particular type of content, DramaFever has continued to expand outside of Korean dramas and also focused on acquisition of Spanish speaking content from Telemundo and BBC dramas such as Pride and Prejudice starring Colin Firth and Jennifer Ehle, and Upstairs Downstairs starring Keeley Hawes and Ed Stoppard (16).

• COLLABORATION NOT COMPETITION: Though exclusivity of content creates a draw for audiences to DramaFever, the insight of the founders includes the long view of creating a subset of content on other platforms. Syndication rights in the United States is another key strategy of DramaFever, as co-CEO Suk Park said, “the more ubiquitous this content is, the better it is for the genre as a whole” with the idea that other platforms work well to introduce content and increase interest in the genre of Korean dramas, which is where DramaFever comes in to fill the need.

• SOCIAL NETWORKING CROSS PROMOTION: Another example of collaboration of other video services, DramaFever successfully drives engagement of fans through YouTube, with consistently increasing subscriber base going from 2,000 subscribers to over 300,000 in 8 months. By using Google+, Facebook and Twitter for promotion, DramaFever seeded their YouTube channels and continued to embed YouTube videos within Facebook using a third- party platform to increase organic views38. YouTube serves as effective platform to engage Korean drama fans with supplemental short form content, trailers, announcement of new series and episodes, sample clips, and focus on favorite moments of stars such as Lee Min Ho, K-Drama Kisses, Korean Skincare tutorials, reviews, lists and countdowns. Also has a DramaFever Latino channel for Spanish speaking fan engagement39. 28 HOME BOX OFFICE – HBO

While HBO Go was previously the TV Everywhere solution for authenticated streaming designed for pay-TV subscribers, HBO Now was launched recently on April 7 2015 as a standalone streaming service available for the monthly subscription fee of $14.99 USD40. In early April 2016, Time Warner CEO Jeff Bewkes announced that HBO Now was nearing 1 million subscribers compared to the 800,000 reported at the end of 2015 along with plans for HBO to increase focus on original programming by increasing its original programming up to 600 hours each year41.

In April 2016, the latest series of popular show Game of Thrones premiered season 6 which broke records as the premiere episode saw an initial 10.7 million viewers tune in to its first linear telecast42. However, one of the challenges of driving viewing traffic to HBO Now was evident in the reported streaming outages during the premiere of season 6.43

Originally gearing up to build a technology platform from the ground up, after experiencing problems with an inadequate project and the need for faster delivery of product, HBO abandoned the project and enlisted the Major league Baseball Advanced Media to build its OTT platform, resulting in resignation from CTO Otto Berkes44.

HBO continues to be an important contribution to the overall Time Warner revenue stream with the end of 2015 seeing a total revenue of $5.6 billion (4% growth from 2014 – 2015, and 10% growth from 2013 – 2014) according to Time Warner’s 2015 Annual Report. In turn, HBO Now becomes a vital part of the overall strategy to continue to grow the HBO brand among the shifts of viewing preferences with the rise of streaming services.

One challenge for television shows across the board is that the currency of the television economy involves the ratings system, which diminishes in relevance if the ratings are inaccurate. As of now, there is no industry standard for total measurement of ratings across all platforms but active steps are being taken to remedy the situation and retain the value of the ratings currency of the industry.

While Nielsen announced plans to team up with Adobe back in 2014 to create the industry’s first comprehensive measurement platform for digital content45, the system is currently in the process of roll out as it was initially reported that Q1 of 2016 would see its first results46. It was reported that ComScore, known for measuring web traffic who had recently merged this year with Rentrak who specializes in audience measurement for movies, also is in the process of working with Adobe to gather metrics from its software and analytics47.

29 HBO RATINGS DATA SAMPLE

[SOURCE: TV Series Finale Online48]

Note on figure: Current ratings of HBO television shows demonstrates disparity of popularity between the massively watched Game of Thrones, and other series that are still considered popular enough to be renewed. However, accuracy of data for actual viewership remains in question as a standard industry measurement that includes all digital platforms waits to be fully be implemented. 30

INDUSTRY ANALYSIS: THE ECOSYSTEM

The following provides definitions of the relevant major players of the industry, in order to understand the climate of challenge for Time Warner and the driving factors that inform business strategy. Definitions are also provided in order to reference and clarify terms, as well as note particular relevant concepts related to OTT strategy.

THE NETWORKS

Broadcast Networks (ABC, CBS, NBC, PBS, FOX and the CW) Cable Networks (Discovery, A&E, ESPN, The Weather Channel, MTV, etc.)

Revenue Source • Ad Sales – Sells national advertising, local advertising by carriers or affiliates • Content Deals –Licensing content to various cable companies, satellite providers, and MVPDs (Multichannel Video Programming Distributors)

THE MVPDs

Multichannel Video Programming Distributors (Comcast, Uverse, DirectTV, etc.) Sells TV packages, broadband and landline services

Revenue Source • Local Ad Sales on programming they run • Subscription fees from consumers

THE STUDIOS

Many TV shows produced by studios (others are produced by the networks)

Revenue Source • Networks pay fees to pick up television programs by studios • Sometimes get shares of ad revenue • Sells syndication rights to independent TV stations and networks (USA or TBS that play reruns of shows) • OTT subscription services (Netflix, Amazon, etc.) that pay for content • Overseas rights for non-US networks and MVPDs that pay for content

THE PREMIUM NETWORKS

Ad-free cable networks, commonly called pay-tv (HBO, Showtime, Cinemax, Red Zone and other sports networks)

Revenue Source • Subscriptions (sold via the MVPDs)

THE OTT SERVICES

Over-the-Top (OTT) refers to web-based video delivery, which doesn’t necessitate a set-top box provided by an MVPD. Includes Netflix, Hulu, Amazon, Vudu, iTunes, etc.

Revenue Source • Subscriptions (Netflix, Hulu, and Amazon Prime are Subscription Video on Demand, or SVOD) • Sales and Rentals (Amazon Instant Video, Vudu, iTunes are all Transactional Video on Demand, or TVOD)

STREAMING DEVICES

Devices that attach to viewer’s TV set to access OTT services directly (Roku, Apple TV, Chromecast, and Amazon Fire)

Revenue Source • Direct sales to consumers

SECOND SCREEN PLATFORMS

Platforms that allow viewers to interact with one another about TV shows or with the shows directly (Twitter, Facebook, etc.)

Revenue Source • Mainly advertising (also sale of and/or interpretation of data also factors in)

SMART TVS

Television that has a built-in app which allows connection to OTT and social media platforms (Samsung, Sony, Panasonic, etc.)

Revenue Source • Direct sales to consumers

[SOURCE: OVER THE TOP: HOW THE INTERNET IS (SLOWLY BUT SURELY) CHANGING THE TELEVISION INDUSTRY BY ALAN WOLK, CREATESPACE 2015]. 32

INDUSTRY ANALYSIS: INDUSTRY DISRUPTIONS

TIME SHIFTING

The practice of audiences watching live TV have shifted due to the internet allowing viewers to watch at other times than just broadcast, increasing value through convenience for the viewer and ability to catch up on missed television shows.

BINGE VIEWING

The practice of watching an entire season of a show through a streaming service, such as Netflix and Amazon.

While initially lucrative for networks and studios who sold past seasons and reruns at top prices to streaming services, resulted in needing to release a full current in-season to a streaming service for lower prices, as the ability to binge watch allows greater numbers of audiences to get hooked on television shows that would otherwise be missed. This creates a partial win and loss for networks and studios.

VIDEO ON DEMAND (VOD)

Originally designed to be a marketing tool, as viewers would see all available shows and be won over to the network’s offerings and the MVPDs.

Also known as pay-per-play service, where a user will pay for the individual title or show (iTunes, Amazon Instant Video, Vudu).

SECOND SCREEN AND SOCIAL TV

Refers to use of a second screen in the form of a tablet, smartphone, etc., while watching another device. Social TV specifically refers to the use of a second device to engage with a social platform while watching television, which includes content that relates to what is being watched (for example, using Twitter to discuss the episode in real time).

CORD CUTTING

Refers to the act of terminating pay-TV subscription by users who previously had both broadband and pay-TV subscription, who then relies on OTT services like Netflix, Amazon, free web videos, etc.

The disruption of cord cutting is a much talked about topic in the current climate as fears of it being ‘the death of television’ as we know now is prevalent. However, though pay-TV subscribers continued to fall in seven of the eight quarters prior to Q2 2014, the actual effect was that the pay-TV industry only lost 0.2% of its subscribers – some 300,000, as the US still has close to a 90% penetration rate49. One explanation for why cord cutting might not be happening as rapidly as current articles seem to report is that there is a lack of alternatives, especially in the case of providers such as Comcast who also provides the broadband from which to access digital streaming content from.

SHIFTING VALUE OF OWNERSHIP

Consumers no longer feel the need for physical ownership of products, as the convenience and selection of having access to a greater quantity of products at their fingertips has become the main trend for consumption of entertainment.

STREAMING VIDEO PLATFORMS

Netflix, Amazon, Hulu, HBO Now all provide large libraries of instant access to content, while being accessible on a variety of devices with an internet connection – which increases the need for bandwidth in which to stream with.

The latest of streaming video platforms, and one of the most controversial to date, is Screening Room – a platform that aims to deliver the latest theatrical release to your home. A new startup by Sean Parker, the man responsible for the major industry disruptors of Napster (the music file sharing service) and Facebook, the emergence of Screening Room has been a large source of contention as of late among the film industry.

While some major figures in the industry embrace the concept as the startup has reportedly been backed by Steven Spielberg, Peter Jackson, J.J. Abrams, Brian Grazer and Ron Howard50, others are adamantly opposed such as James Cameron who denounces the service as a threat to theaters51. While not naming names, Warner Bros. CEO Kevin Tsujihara assured exhibitors at this year’s CinemaCon that Warner Bros. has no intention of allowing a third party or middle man to come between the relationship between the studio and theaters52.

[SOURCE: ALL DEFINITIONS EXCEPT WHERE NOTED TAKEN DIRECTLY FROM OVER THE TOP: HOW THE INTERNET IS (SLOWLY BUT SURELY) CHANGING THE TELEVISION INDUSTRY BY ALAN WOLK, CREATESPACE 2015]. 34 INDUSTRY ANALYSIS: OTT STRATEGIES OF TIME WARNER DIVISIONS

TV EVERYWHERE – Authenticated television online. The concept to make television available over the internet launched as early as 2009, spearheaded by Time Warner and Comcast, in efforts to bundle access to programming across various platforms to dissuade cable customers from cord cutting53 54 55.

DRAMAFEVER – Streaming SVOD specializing in Korean dramas and films, as well as Spanish language content. Acquired by Warner Bros. February 2016. As Craig Hunegs stated, the intention is to get closer to their audience. As Warner Bros. has not traditionally had capabilities to build direct- to-consumer offerings, OTT, SVOD services, they had been looking for a team that had the experience and technology to underpin SVOD service and according to Hunegs, Warner Bros. liked DramaFever the best of the other options available56.

FILMSTRUCK – Turner’s first direct-to-consumer product in the form of a SVOD for film aficionados, developed and managed by Turner Classic Movies (TCM) in collaboration with the Criterion Collection which will now exclusively stream the collection. Slated to launch Fall 201657.

CNN’S GREAT BIG STORY – Combines video storytelling customized for social distribution and integrated advertising58. Within first 6 months, draws 40 million views a month proving to be a hit with millennials59.

ELEAGUE – Turner’s new eSports league created in partnership with WME | IMG. Set to launch Summer 2016.

MASHABLE – Turner invested $15 million in Mashable in addition to last year’s $17 million, TBS and TNT will work with Mashable to co-develop and distribute video content on cross-platform ad sales packages60. Mashable focuses on distribution of content through social platforms rather than drive traffic to website61.

HBO GO – HBO’s TV Everywhere solution. A streaming service for HBO pay-TV subscribers. Suffered critical outages during the finale of True Detective and the Game of Thrones season four premiere62 demonstrating need for adequate technology to handle high levels of streaming traffic.

HBO NOW – Standalone streaming subscription for a monthly flat fee, without needing to be a subscriber to HBO pay-tv channel. Featuring HBO exclusive content such as Game of Thrones and Girls, along with movies. After originally gearing up to build a technology platform from the ground up, after experiencing problems including the need for faster delivery of product, HBO abandoned the project and enlisted the Major League Baseball Advanced Media to build its OTT platform, resulting in resignation from CTO Otto Berkes63.

MACHINIMA – Digital content company that provides content creators multiple platforms for distribution and monetizing digital content and programming brands focused on the gaming community. Warner Bros. invested a reported $24 million in 2015 to the company64.

ISTREAMPLANET – A Las Vegas based provider of streaming and cloud-based video and technology services. Turner acquired a majority stake August 2015, as Turner stated the plan to shift its technology infrastructure to cloud-based applications and gain tools for development of new products and new iterations of existing businesses, which includes the need for OTT and TV Everywhere. May also support other Time Warner businesses. Will continue to operate autonomously and service non-Time Warner companies65.

NOTE: While Turner broadcasting also comprises network television and sports, due to the focus on television shows and film of this report, data and news primarily related to network television and sports are not included. Further comprehensive examination of the Turner arm of the Time Warner division would require more extensive research and analysis beyond the scope of this report.

The OTT strategies of the parent company Time Warner are not a comprehensive look at all OTT related strategies, as the focus of this report is to provide a sampling of the most current strategic business decisions as they relate to acquisition and development of OTT services.

36 FINDINGS OF INDUSTRY ANALYSIS

• BINGE VIEWING CONTENT CHALLENGES: While initially the revenue stream from standalone OTT services such as Netflix and Amazon was a key source of income for studios as they pay large sums for full seasons of reruns which allow for binge viewing, the rise of these types of viewing habits has its pros and cons. OTT services buying full in-season stacks of a television show meant older seasons decreased value, but at the same time, past episodes availability results in opportunities for new audiences who missed the show while it was in-season and would allow them to catch up.

• 3rd PARTY STREAMING CHALLENGES: Networks and studios fear cannibalization of OTT services, as the rise of digital viewing platforms creates competition – which becomes more significant as more original content is produced by OTT services such as Netflix’s House of Cards and Orange is the New Black. Not only do OTT services compete with one another for exclusive content (Amazon Prime made headlines February 2013 when it announced it secured exclusive rights to Downton Abbey, no doubt to attract the enormous following the show has in the U.S., thereby snatching away rights from Netflix who had previously streamed the show66), but as more networks and studios attempt to compete with their own OTT services, it complicates the strategic decisions of where content should be licensed to and when it should be kept exclusive in the media conglomerate family. Exclusive premium content is a major attraction to a streaming service such as HBO Now, as popular television shows such as Game of Thrones can be viewed on a live and catch-up basis, but dependency on exclusivity means OTT services will need to provide a steady stream of highly –sought after exclusive content in order to retain subscribers who may be likely to cancel after a show is no longer running. Time Warner CEO Jeff Bewkes stated that the company is currently in the process of evaluating whether to retain rights for longer period of time and forego or delay certain content licensing67, which remains to

• BUNDLING IS HERE TO STAY: While the shift to steaming subscription channels continues to grow, the strategy of Time Warner’s launch of subscription services that focus on niche content creates an opportunity to continue the practice of bundling, only in subscription services rather than channels. The tendency has already begun with the Dish Network’s Sling TV offering a few dozen TV app channels for $20 per month, Comcast’s small traditional pay-TV package for $50 per month and Amazon’s launch of a bundle that includes Showtime, Stars and apps from a variety of other web video companies as Hulu and Showtime are also offering a discount to add on one to another68.

• TECHNOLOGY CHALLENGES: Building a streaming platform from the ground up proved to be a challenging task for Timer Warner in their attempt to build a platform for HBO Now. Adequate technology for streaming is a key challenge for a major conglomerate like Time Warner and will hinder growth if solutions cannot be found in the timeline that will allow them to keep competitive with their OTT services.

• CUSTOMERS HATE CABLE COMPANIES (MVPDs): The hostage-like situation of MVPDs has potentially created a deficit of satisfaction and loyalty among subscribers due to the providers lack of focus on customer experience and service in the past. Comcast is famously disliked while retaining subscribers which suggests there is little to keep subscribers is other alternatives are to be had6970 Though Comcast CEO Brian Roberts attempts to refute common criticisms of the company by stating they are out of date due to changes in the past two years the company has made to address the issues, the company’s poor reputation appears rooted firmly in place71 72 which makes less dependency on cable companies and more on streaming services all the more attractive. 37 REFERENCES

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